The Social Media Risk Premium

Using novel corporate Twitter data on all U.S. public firms, we show that firms with a Twitter account earn 50 basis points per month higher returns than similar firms without a Twitter account. This `Twitter premium' is higher among smaller firms and firms with higher fundamentals uncertainty, and is not explained by existing risk-factor models. Having a Twitter account presents opportunities for value creation but also raises social media risks. We show that a social media risk factor is priced in the cross-section of U.S. stock returns and carries a premium of 30 to 75 basis points per month controlling for other risk factors.